Waterfield Advisors and India Impact Investors Council (IIC) launch India’s first report on impact investing amongst Indian family offices.

Mumbai: Waterfield Advisors and Impact Investors Council (IIC) announced the launch of their report titled ‘Unlocking Impact Capital: The Indian Family Office Edition’. This is a first-of-its-kind study on the state of impact investing practices amongst family offices (FOs) and high net-worth individuals (HNIs) in India.

Impact investment in India has grown at 26% CAGR over the last decade, bringing in $10.8 bn cumulatively. However, most impact capital currently comes from global institutional investors highlighting the significant potential to unlock domestic capital. Indian FOs/HNIs play an important role in changing this narrative. As significant investors with flexible decision-making capabilities and patient capital, Indian FOs are perfectly placed to invest in entrepreneurs trying to address the needs of the historically ignored ‘next half billion’.

The purpose of this report is to explore the views of Indian FOs/HNIs with regard to impact investment – their perspectives on challenges, opportunities, and trends. The study analyzed data and insights from 700+ Indian impact enterprises between 2016 and 2020, a custom survey with 31 Indian FOs/HNIs with a cumulative net worth of at least USD 15.1 bn and 15 impact funds.

Some key findings from the report are as follows:

·       FOs/HNIs are active in impact investment, but their overall contribution is yet to become meaningful: 83 different FOs/HNIs have been active in impact investing from 2016 to 2020. The total quantum invested by these families is USD 279.5 mn which amounts to 3% of the total impact investing quantum in India.

·       Most FOs/HNIs invest small amounts at seed stage, few committed ones active in large-ticket later stage deals: 52% FOs/HNIs invest in seed-stage amounting to USD 4.7 mn. 17% invest in Series A amounting to USD 20.5 mn while 26% invest in Series B and later stages, amounting to USD 138.9 mn.

·       FOs prefer direct investments into impact enterprises: Almost 60% of the total amount of investments in the impact sector has been made as direct investment. Direct ownership allowed for a hands-on role and higher satisfaction.

·       Financial inclusion and healthcare remain favorite sectors: While FOs/HNIs have invested across a variety of sectors, financial inclusion and healthcare make up 50% of cumulative investments by volume.

·       There is ambivalence towards combining impact and returns, with many FOs/HNIs comfortable with below-market returns: 55% of FOs/HNIs expect risk-adjusted market-rate returns while 45% were fine with below market-rate returns. This indicates significant potential for the impact investing ecosystem to tap into impact-focused FOs/HNIs by improving the impact narrative.

In terms of barriers, there were two broad buckets – those related to the field of impact investment in general and those related to specific products/strategies. The report also highlighted certain key recommendations for investors and the wider ecosystem to help catalyse FOs/HNIs’ role in impact investment.

Recommendations for FOs/HNIs as investors:

·       FOs/ HNIs could broaden their approach by thinking of ‘capital for sustainable development’ as a broad umbrella, with philanthropy, social finance, impact investing as various tools that can allow for multiple pathways to creating impact.

·       FOs/HNIs should define a clear strategy to navigate the various options provided by the ecosystem. This strategy should ideally be built on their motivations and include a set of principles, criteria, and guidelines.

·       Exploring a barbell strategy to investment could help FOs/HNIs strike a balance on the returns-impact continuum and cope with the trade-offs by investing in both, high-impact, and high returns opportunities.

Recommendations for the wider ecosystem:

·       Investing in education and capacity and creating a more facilitative environment for FO networks can yield higher FO/HNI participation and retention.

·       Strengthening overall impact standards for both funds/asset managers as well enterprises is a pertinent step towards helping FOs/HNIs understand and embrace the impact investing model

·       Creating diverse investment products across the risk-return continuum. The products could go beyond equity and consider debt, social finance models such as impact bonds and other forms of blended or hybrid capital.

“Today, more than ever, as the world emerges from the Covid pandemic, we are seeing a growing recognition amongst Indian Family Offices and HNIs to adopt a broader view of wealth as having human, financial, social and environmental dimensions or wealth with a purpose. We see this report as a starting point in our attempt to help domestic Family Offices understand, evaluate and mobilize capital towards impact investment, and thereby to help them bridge the gap between their purpose and their wealth.” said Soumya Rajan, Founder & CEO, Waterfield Advisors

According to Ramraj Pai, CEO of IIC “Impact Investing presents a unique long-term opportunity for Family Offices to become catalysts of innovation, entrepreneurship, and social impact in the country. Our impact entrepreneurs can benefit significantly from Indian Family Offices by leveraging strategic capital and expertise. We hope this report will provide useful inputs to all stakeholders in the sector and help in creating a more vibrant impact ecosystem for India.”